Ethical Considerations When Opening A Law Practice

By Joseph P. Balkenbush

There are a number of ethical issues which must be considered when opening your law practice. The most practical way to begin is to reread the Rules of Professional Conduct (RPC). There are a total of 57 rules. As is often the case when reading statutes, some language can be difficult to comprehend. Each rule has a comment section which provides explanatory notes with headings. Each rule is important and as a practicing attorney, you should be familiar with all of them. This article will deal with the more “high profile” rules. The rules are codified in Title 5, Oklahoma Statutes, Appendix 3-A. They can be found at http://goo.gl/EKG0GB.

PREAMBLE

The first statutory section of Appendix 3-A is titled “Preamble: A Lawyer’s Responsibilities.” Since you’re going to be reading the RPC, you might as well start with the preamble! You will be reminded of the “lofty aspirations” for which we all strive as members of this honorable profession. Following are some sections which stood out when I recently reread the preamble:

Provision 1. A lawyer, as a member of the legal profession, is a representative of clients, an officer of the legal system and a public citizen having special responsibility for the quality of justice.

Provision 2. As a representative of clients, a lawyer performs various functions. We advise our clients and advocate and negotiate on their behalf.

Provision 5. A lawyer’s conduct should conform to the requirements of the law, both in professional service to clients and in the lawyer’s business and personal affairs. A lawyer should use the law’s procedures only for legitimate purposes and not to harass or intimidate others. A lawyer should demonstrate respect for the legal system and for those who serve it, including judges, other lawyers and public officials.

Provision 9. These principles include the lawyer’s obligation to protect and pursue a client’s legitimate interests, within the bounds of the law, while maintaining a professional, courteous and civil attitude toward all persons involved in the legal system.

I encourage you to take a few minutes to read the preamble, perhaps for the first time since you prepared to take the bar exam, and remind yourself of why you became a lawyer.

CLIENT-LAWYER RELATIONSHIP

There are 18 subsections to the RPC Rule 1. Your detailed knowledge of each is important, but the subsections which follow are some of which you should be most aware:

1.1 Competence. You do not have to, and should not, take every case that comes into your office. Be sure you have the requisite knowledge of the law relevant to the case and the necessary level of skill to represent the client. If you do not yet possess the necessary knowledge and skills to competently represent the client, either refer the client to another attorney or decline to take the case.

1.3 Diligence. It is essential that you act with reasonable diligence and promptness in representing your client. That means you should pursue the matter on behalf of your client and take the necessary lawful and ethical measures to resolve the case. Diligent prosecution/defense of a client’s case will ensure compliance with these rules.

1.4 Communication. Promptly return phone calls from clients. Maintain a double or triple redundant docketing system regarding relevant dates. There are few worse feelings than getting a call from a judge’s office asking why you aren’t there. Promptly return calls from opposing counsel and/or respond to all correspondence (whether by letter, text or email). Again, promptness in all communication with a client, opposing counsel and third parties will ensure your compliance with this rule.

1.5 Fees. While the RPC do not require a written fee agreement with your client, having one will set the tone for the representation. A well drafted fee agreement will concisely set out the scope of representation and how you will be paid. The necessity of a written fee agreement cannot be overemphasized. A written contract obviates the need for any explanation of the agreement between attorney and client should a dispute arise. Pro forma fee agreements are available on the OBA website and are easily accessible on the Internet.

1.6 Confidentiality of Information. This is one of the most, if not the most, important RPC. Client confidentiality must be protected at all times. There are rare exceptions to disclosure of information obtained from your client. They are:
    •    to prevent reasonably certain death or substantial bodily harm,
    •    to prevent a client from committing a crime or a fraud that is reasonably certain to result in substantial injury to financial interests or property of another,
    •    to prevent, mitigate or rectify substantial injury to the financial interest or property of another that is reasonably certain to result or has resulted from the client’s commission of a crime or fraud …. Provided that the lawyer has made reasonable efforts to have the client rectify such criminal or fraudulent acts,
    •    to secure legal advice about the lawyer’s compliance with these rules,
    •    to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client and
    •    as permitted or required to comply with these rules, other laws or court order. Per this exception, you may disclose otherwise confidential information when ordered to do so by the court.

1.7, 1.8 and 1.9 These sections deal with the subject of a potential conflicts of interest between current clients and your duty to former clients. In general, the majority of conflicts of interest between current clients or former clients can be waived if the current or former client gives informed consent, confirmed in writing. If a current or former client will not waive the conflict, then representation must be declined or terminated.

1.15 Safekeeping Property. This is the section that deals with the necessity of a lawyer maintaining a trust account. Detailed familiarity with this rule is essential to your practice.

The following are important excerpts from a previously published article regarding trust accounts.1
    •    What does IOLTA stand for?
        “Interest on Lawyers Trust Accounts.”
    •    Which banks offer IOLTA trust accounts?
        Ask your own bank first. If they do not offer these accounts, call the Oklahoma Bar Foundation (OBF) at 405-416-7070 and ask them to recommend one in your area. If your office is in a town that does not have a participating bank or the bank routinely charges more in fees than any interest generated, or it is otherwise not feasible, you may be excused from the duty to have a trust account. You should consult with the OBF in making this determination.
    •    What money goes into the trust account?
        
Unearned legal fees, unincurred expenses and third-party monies in connection with the representation. This typically means, for example, retainers (until the monies are earned), flat fees (until the monies are earned), filing fees, deposition and expert witness expenses. Settlement proceeds on a check to you and your client(s) or others may also go into the trust account for distribution.
    •    Must every lawyer have an IOLTA trust account?
        
No. Only lawyers who hold client or third-party funds regarding a representation must have trust accounts.

    •    May a lawyer assign certain tasks for trust accounting to nonlawyers?
        
Yes, but the lawyer must educate the others, supervise the work and monitor the account. Ultimate responsibility for the trust account is a nondelegable duty.

    •    What is the best short summary of a lawyer’s principal duties regarding the trust account?
        
At any time, you should be able to show what amounts are in the account for each client.

    •    What should I do if I hold money in my trust account and the client and/or third party (with a legitimate interest in the money) disagree as to how it should be paid out?
        
You should give notice to every party that has an interest in the money and pay out any undisputed amounts. Then, hold the disputed amount until one of two things happens, 1) you reach an agreement among all interested parties, or 2) a court or arbitrator directs you how to distribute the money. You should act promptly to resolve the dispute and may use a mediator, arbitrator or file a motion or action with the court to make the determination. Be sure to provide a full accounting of the monies to the client and/or a third party for whom you held funds.

    •    May a lawyer take “advances” on money from the trust account?
        
No, because the money has not been earned. A lawyer may not take money unless it has been earned. Otherwise, it is arguably simple conversion at best and misappropriation (theft) at worst.

    •    How should a “flat” fee be treated?
        
Generally, a flat fee should be treated as a retainer. It should be deposited into the trust account until the work is performed. It may be withdrawn in increments, but work must be done to justify the withdrawal of that portion. Cover the payment schedule in your fee agreement. It does not need to be tied to hours worked, but it must be reasonable. This procedure is often misunderstood. It all goes back to the fact that fees must be earned to be taken. If no work has been done, then the fees have not been earned. Only money that has been earned should be deposited into your operating account.

    •    When a lawyer mistakenly withdraws money from the trust account prior to the fees being earned, what should s/he do?
        
Replace the money immediately and make accounting entries on both ends of the transaction that document what occurred in the event you are later asked to explain.

    •    What should a lawyer do in the event a client disappears or there is an amount in the trust account of uncertain ownership?
        
First, determine whether the Oklahoma Unclaimed Property Fund is entitled to the money. The Unclaimed Property Division may be contacted at 405-521-4273 or unclaimed@treasurer.ok.gov. If not, the money may be paid to the Oklahoma Bar Foundation. Include a cover letter that explains which client the money is attributable to, a last known address and your efforts to contact them. The OBF will hold the money. If that client ever reappears, the OBF will refund the principal amount originally deposited and you may return it to the client.

    •    Is any particular accounting program required?
        
No. Anything from a loose-leaf notebook to a fancy computer program can be acceptable so long as the funds are properly accounted for. However, there are a number of software programs that will ensure you are in compliance with these rules.

    •    How long must a lawyer hold records related to account funds (and other property of the client)?
        
At least five years after termination of representation. Generally, all financial records should be kept, including, but not necessarily limited to: the fee agreement, bank statements, billing records (e.g. time sheets), billing statements, payment records, deposit and withdrawal records, trust account “ledgers” and reconciliations, settlement statements and accountings and related correspondence. You should be able to reconstruct, account and justify for all amounts that flow through your account(s).

ADVOCATE

RPC Rule 3 provides the boundaries regarding advocacy on behalf of a client.

3.1 Meritorious Claims and Contentions. “A lawyer shall not bring or defend a proceeding or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous ….” This rule means exactly what it says. An attorney may not prosecute a case just because a client wants him/her to do so.

3.3 Candor Toward the Tribunal. The characteristics of honor and integrity are very important for a lawyer to possess. Misleading a judge or opposing counsel by making untrue statements, or even “coloring” the evidence can ruin your reputation. Don’t do it. You will be practicing law for a long time. Judges have a long memory. So does opposing counsel.

LAW FIRMS AND ASSOCIATIONS

RPC Rule 5 contains seven subsections dealing with law firms, associations of lawyers, responsibility for nonlawyer assistants and the unauthorized practice of law. In short, senior lawyers are responsible for the lawyers working for/with them. A lawyer is also responsible for their legal assistant, secretary and receptionist. It is the attorney’s responsibility to ensure that each of their employees is aware of the restrictions and limitations upon what they can and should say or do.

PUBLIC SERVICE

Rule 6 and its five subsections encourage you to give back to the legal profession. The legal system is, and will become, what you make it. The “lofty aspirations” set out in the preamble to the Rules of Professional Conduct are statutes and it is our responsibility to comply with them. You will not be disciplined for not complying with Rule 6, but you will be a better dad, mom, brother, sister, etc. and subsequently lawyer, if you do!

INFORMATION ABOUT LEGAL SERVICES

Rule 7 and its subsections deal with communicating with the public regarding your services, advertising and prohibit direct contact with prospective clients. Bottom line of these rules is to be honest and do not mislead anyone regarding your qualifications and experience.

MAINTAINING THE INTEGRITY OF THE PROFESSION

Rule 8 and its subsections allow the legal profession to continue to be self-governing. Our compliance with these rules will allow us to continue to operate independently without government regulation.

8.3 Reporting Professional Misconduct. Per this rule, we are obligated to report another lawyer who has committed a violation of the RPC that raises a substantial question as to the lawyer’s honesty, trustworthiness or fitness as a lawyer. The comments to this rule and case law regarding it require reporting if you are sure (certain) a lawyer or a judge has violated this rule. It does not mean they might have or could have violated the rule. I am reminded of the quote from the movie starring Robert De Niro. In the movie, his character stated “if there is doubt, then there is no doubt.” It is your obligation to report someone who should be reported.

8.4 Misconduct. This subsection of Rule 8 provides the definition of this “misconduct.” When you are considering the need/obligation to report someone, refer to this subsection to ensure that there has indeed been misconduct.
In conclusion, your familiarity and compliance with the Rules of Professional Conduct will help ensure that you are not the subject of a complaint or grievance from a client, third-party or other attorney. Your focus should be on being the best that you can be in all aspects of your life, including but not limited to your legal career!

1.    Oklahoma Bar Journal, Oct. 6, 2012, Volume 83, No. 26. “Trust Accounting 101” by OBA Ethics Counsel Travis Pickens

ABOUT THE AUTHOR

Joe Balkenbush is OBA ethics counsel. Have an ethics question? It’s a member benefit and all inquiries are confidential. Contact him at joeb@okbar.org or 405-416-7055; 800-522-8065.

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